The UK finally appears to be heading towards some level of normality as lockdown restrictions are eased. The mortgage market is also beginning to resemble its former self, if not in terms of volume of clients, then with regards to the criteria brokers are searching for.
Criteria have shifted at an incredibly rapid pace since lockdown first hit.
Knowledge Bank recorded an unprecedented 52,000 changes, and 1.35 million searches, in 2020, with lenders and brokers adapting to the extraordinary circumstances.
As criteria changed, the phrase “new normal” became a cliché as we discussed the ways the pandemic would impact the future.
Now that we are starting to see light at the end of the tunnel, what can criteria trends tell us about the mortgage market’s new normal?
Income multiples and soft DIPs
May was the first month since March 2021 to feature no Covid-related terms in the five most frequently searched criteria in the residential market.
“Furloughed workers” finally dropped out of the five most-searched terms after six-months of consistent interest from brokers.
While we may be through the worst of the pandemic, the lockdowns have certainly left some scars. There are still signs of clients struggling financially with brokers searching for “defaults – registered in the last three-years” frequently enough that the term was the fifth-most searched in May on Knowledge Bank.
Sadly, defaults are likely to continue to form a significant part of the residential market.
Even as we move away from lockdowns and industries fully reopen, clients who have been unable to pay bills will have these on their records for the next few years.
The competition for homes, which has driven rapid increases in property-prices, is perhaps also driving the use of the term “soft-footprint at decision in principle (DIP) stage”.
Brokers may be applying to multiple lenders due to the urgency that clients had to beat the stamp duty deadline. Due to the fierce competition for homes, many estate agents will not even allow a viewing without a decision in principle, so brokers are under pressure to ensure clients get one in place.
The use of soft-footprint searches could be set to continue. With brokers and clients looking for lenders who offer an application process that does not impact future credit scores, more and more lenders may look to offer this as standard in the coming months.
“Income multiple for affordability assessment” is another term that may be popular due to the pandemic. Motivated by lockdowns and sparked into life by the stamp duty holiday, house prices have risen over 10 per cent in the past year, according to Nationwide.
Despite savings increasing by £200bn since March 2020, according to the Bank of England, the spike in prices is causing many clients to stretch their affordability to get the home they want.
As the average wage is unlikely to spike to the same extent as house prices in the coming months and years, affordability will continue to be a high priority for clients.
The pandemic is still impacting the housing market to a degree, and we are not yet quite fully out of the tunnel, but a picture of the future is beginning to come into focus.
The vast torrent of clients rushing to beat the stamp duty deadline has begun to slow to a more recognisable level as the tax returns in stages.
Product ranges are returning to pre-pandemic levels, and with industries re-opening, a more settled future is on the horizon.
The mortgage market will certainly still retain some indirect indications of the pandemics impact, with some still under financial strain, but the outlook is somewhat familiar.